A proposed class action lawsuit alleges the two largest dairy cooperatives in the Southwest United States have illegally conspired for years to suppress the pay remitted to dairy farmers.
The 74-page antitrust suit alleges Dairy Farmers of America, Inc. (DFA) and Select Milk Producers, Inc., who reportedly control at least 75 percent of the Southwest market, have since at least January 2015 wielded their apparent stranglehold on the market to artificially depress the prices dairy farmers receive for raw milk.
The lawsuit claims that the effects of the co-ops’ alleged scheme have been devastating, forcing many dairy farmers, in particular those in New Mexico, most of Texas, the Oklahoma panhandle, eastern Arizona and southwestern Kansas, to borrow from generations of equity built up in their land just to keep themselves afloat. Other Southwestern dairy farmers have been forced to declare bankruptcy or completely shutter their operations, the suit says.
More broadly, the case claims that DFA and Select Milk, as the dominant players in the dairy industry in the Southwest, have caused the entities who occupy the rest of the market to follow their lead and pay dairy farmers suppressed prices for raw milk.
With regard to the specifics of the alleged scheme between DFA and Select Milk, the lawsuit claims that the companies have, for one, unlawfully shared with each other pricing information through their various commercial joint ventures. Further, the lawsuit alleges DFA and Select Milk have together driven down take-home pay for dairy farmers in the region by way of “selective and increasingly frequent” non-pooling of milk, which the suit says allows the co-ops to market their farmer-members’ milk at higher prices without passing on those increases to the farmers.
The case also alleges DFA and Select Milk have illegally coordinated pricing and pricing-related decisions, including by setting monthly farmer-member rates to “almost always within a few pennies of each other.”
“This would not be the case absent the conspiracy alleged herein,” the complaint states.
Per the case, roughly 85 to 90 percent of the milk marketed in the Southwest comes via a dairy cooperative. According to the filing, DFA and Select Milk are obligated to operate for the benefit of their farmer-members, who are obligated in turn to deliver all of their milk to the co-op to market on their behalf. The defendants must market or process farmer-members’ raw Grade A milk so as to obtain the best possible price for the product, the suit stresses.
The lawsuit scathes that DFA and Select Milk have “utterly forsaken this obligation,” and instead worked together to “stabilize, fix, and maintain” at artificially low rates the raw milk prices paid to farmer-members.
The case states that the dairy industry is “particularly susceptible to conspiracy” due in part to a lack of pricing transparency and the complex manner in which milk purchase and sale prices are calculated. The suit summarizes that although the U.S. Department of Agriculture, under the Federal Milk Marketing Order, establishes monthly prices for milk in the Southwest, DFA and Select Milk contract for the sale of their members’ products with their customers at “whatever rates are privately negotiated.”
Often enough, the lawsuit says, the end purchasers of farmer-members’ raw milk are joint ventures, subsidiaries or other affiliates of the defendants.
“Put differently, in many circumstances DFA and Select Milk are selling their members’ milk to the cooperatives’ own commercial divisions,” the suit alleges, contending that there exists an “inherent conflict of interest” between the companies and the co-ops’ member-farmers.
According to the case, DFA and Select Milk benefit financially from reducing raw milk prices paid to farmers while maintaining a supply of as much raw milk as possible because the cooperatives’ commercial operations use raw milk as an input. Cheaper raw milk, the suit says, means the defendants can produce their value-added dairy products—cheese, yogurt, milk powder, etc.—more profitably. The profits gained from value-added products, however, do not make their way back to member-dairy farmers, the lawsuit claims.
The complaint says that although DFA and Select Milk have enjoyed record profits from their commercial divisions, the sums paid to member-farmers have remained “consistently low.”
The lawsuit looks to represent all dairy farmers who produced raw Grade A milk within the Southwestern United States, as defined by DFA’s Southwest Area region, and sold the milk independently, directly or through an agent to DFA or Select Milk at any time from at least January 1, 2015 through the present.
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